Large healthcare stocks likely
to suffer as Trump supports the import of cheaper generics

Donald J Trump is poised to become the next President of the
United States of America, one of the most controversial and divisive Presidents
the country has ever had judging by recent polls.

What will the consequences of this result be? It’s incredibly
difficult to know and therein lies the challenge. Candidates generally track
towards the hopes and dreams of their core electorate during the primaries and
election campaigns and even the firebrand Trump has seemed to learn the
importance of moderating his position to avoid alienating or antagonising
voters.

Trump, though, is an anti-establishment candidate who appears to
be resistant to advice and insensitive to nuance and detail in situations. As
such we will now learn whether he follows the tendency of previous elected presidents
to moderate their positions in response to representations from advisers
(including the Joint Chiefs of Staff, America’s senior military leaders),
lobbyists and the whims of Congress.

Trump’s predecessor, President Obama, enjoyed just one two year
spell in which his party controlled both houses of Congress. During that period
he managed to pass the Affordable Care Act (Obamacare). President elect Trump
promises to ask Congress to repeal this legislation making the same piece of
legislation the centre piece of both Presidents’ legislative agendas.

Trump has the will of Congress which he needs in order to make
this happen. He has described some features of a replacement and it is not
unreasonable. However, a repeal of Obamacare will have a far reaching impact
and the subject will be very significant to Congressmen who will face
re-election in just two years’ time.

Trump is also generally anti-regulation. Ironically, for a
populist and protectionist candidate, that places the interest of business
ahead of those of consumers and taxpayers.

Beyond that Trump has promised sweeping tax cuts which are likely
to face significant hurdles from fiscally conservative Congressmen given that
they are unfunded (they would add substantially to the national debt).

We can expect that agreement can be reached on some portion of
these cuts providing a fiscal boost. It would be preferable for taxes to be
used to fund infrastructure.

investment
and Trump has promised this as well but his detail is particularly lacking in
this area.

The
US political system is hardwired against fiscal spending as it requires the
support of Congressmen, all of whom must seek re-election again in just two
years, and who need to protect their district’s interests above those of the
nation.

Tax
cuts are generally more achievable as they are enjoyed by all, but it is hard
to see an even distribution of infrastructure investment making it hard to gain
House support. Trump appears to lack the conviction and the diplomacy to achieve
a significant infrastructure deal.

The
most significant impact of Trump’s win is likely to be his promise to impose
substantial barriers to trade with Mexico, virtually undoing the North American
Free Trade Agreement (NAFTA) and taxing financial transfers between the US and
Mexico as part of his plan to build a wall and make Mexico pay for it.

He
proposes a similarly antagonistic attitude towards China. His willingness to
follow through on these bold and aggressive policies is one of the reasons that
investors had expressed a preference for the status quo, represented by Hillary
Clinton. This is a testament to the market’s preference for certainty over
uncertainty or perhaps more accurately for predictability.

Hillary
Clinton is actually considered to be more hawkish on foreign policy than
President Obama and under her tenure there would, for example, have been
concerns about how antagonistic relations with Russia might have become.
President elect Trump might be expected to take a less antagonistic tone given
he has hinted at greater co-operation with Russia during his campaign, so
relations with Russia will be an area to pay close attention to over the coming
months.

In
general though there is relatively little that was tangibly preferable about a
Clinton Presidency which is immediately appealing to investors, other than
avoidance of uncertainty. By contrast there was a reasonable amount which would
appeal to investors by a pro-business republican if it were presented by a less
abrasive character than Donald Trump.

We suspect that investors will develop a
degree of acceptance of the new President and will focus particularly on the
prospect of some meaningful fiscal stimulus. Over the medium term there is much
to learn about the character of Donald Trump as a sitting President but from an
investors’ perspective the features of his tenure are likely to be much more
positive than the market’s performance during the campaign would imply.